Commodities Daily - January 17, 2020

> Oil trades sideways amid downbeat IEA report, mixed data from China. Today, investors will eye UK retail sales, eurozone CPI, and US housing starts, building permits and Michigan consumer confidence, along with the Baker Hughes rig counts. The key data point, however, may be US December industrial production, which is due at 17:15 Moscow time. If it is weak, as the ISM manufacturing index reading for December suggests it might be (the gauge was in contraction territory at 47.2 despite mostly positive trade headlines), this could push Brent to yet another test of support at $63.95/bbl. We expect Brent to trade at $64-65/bbl for most of the day.> Positive news from Asia fails to move gold this morning. A reported rise in Chinese industrial production in December and healthy Chinese retail sales figures failed to dent demand for safe haven assets this morning. Gold is trading near the $1,555/oz mark. Later today, the focus will shift to US housing and industrial production data and the University of Michigan consumer confidence index. We expect gold to consolidate in the $1,550-1,560/oz range today.OIL TRADES SIDEWAYS AMID DOWNBEAT IEA REPORT, MIXED DATA FROM CHINAAfter trading steadily near $64.4/bbl during Asian trade yesterday, volatility in Brent picked up. Ahead of the monthly IEA report, the benchmark first slid to $64.2/bbl and then rose to $64.6/bbl. One highlight from the report that immediately grabbed investors' attention, pushing Brent to $64.75/bbl, was the IEA's view that Iraqi oil supply is vulnerable given the tensions in the Middle East. However, upon further examination it became clear that the IEA maintained a bearish outlook for 2020. Moreover, the outlook this time was even more bearish than in last month's report (the IEA has consistently been more downbeat in its monthly reports than the EIA and OPEC). The agency slightly lowered its 2020 oil demand growth forecast (by 0.02 mln bpd), to 1.19 mln bpd y-o-y, and made an upward revision (of 0.08 mln bpd) to its non-OPEC supply growth projection, to 2.13 mln bpd y-o-y. It said that in order to keep the market balanced this year, OPEC would need to produce as little as 28.88 mln bpd (down from its 28.96 mln bpd estimate a month earlier), versus the EIA's estimate of 28.95 mln bpd and OPEC's 29.47 mln bpd (all three agencies cut their 2020 estimates for this so-called "call on OPEC crude" in their December reports). The IEA estimated OPEC's December production at 28.89 mln bpd. Given the call on crude estimate, this level, if maintained throughout this year, would prevent the much-feared market oversupply in 2020. We note, however, that OPEC+ would also need to extend the production cut deal to cover the entire year for this balance to be achieved. The agency also pointed out that "even if they adhere strictly to the cuts, there is still likely to be a strong build in inventories during the first half of 2020." Its estimate for the call on OPEC crude in 1H20 (when demand rarely grows due to seasonal factors) is now 28.5 mln bpd.After the initial move higher following the release, Brent fell to an intraday low of $63.9/bbl before rebounding toward $65/bbl in the second half of the day. This was the third time this week that Brent tested and then failed to hold below strong resistance at $63.95/bbl. The main positive factor for risk sentiment during trading in the US yesterday was the Senate's passage of changes to the United States-Mexico-Canada Agreement. Brent eventually settled at $64.62/bbl, fixing $0.62/bbl above the previous settlement. This morning, it has held near $64.6/bbl following mixed data from China. The National Bureau of Statistics reported a record-high yearly average of 13.05 mln bpd in refinery throughput in 2019 (up 7.6% y-o-y), while December's 13.78 mln bpd figure (up from 12.07 mln bpd a year earlier) was the highest monthly average on record. This provided tailwinds for oil, though these were offset by expectedly weak GDP data showing growth of 6.0% for 4Q19 and 6.1% for 2019. The latter figure marked the slowest pace in 29 years and was down from 6.6% in 2018, barely remaining within the government's 6.0-6.5% target range. Today, investors will eye UK retail sales, eurozone CPI, and US housing starts, building permits and Michigan consumer confidence, along with the Baker Hughes rig counts. The key data point, however, may be US December industrial production, which is due at 17:15 Moscow time. If it is weak, as the ISM manufacturing index suggested it might be (it was in contraction territory at 47.2 in December, despite mostly positive trade headlines), this could push Brent to yet another test of support at $63.95/bbl. We expect Brent to trade at $64-65/bbl for most of the SITIVE NEWS FROM ASIA FAILS TO MOVE GOLD THIS MORNINGChina this morning reported that GDP held at 6% y-o-y in 4Q19 and 6.1% in 2019. Industrial production expanded 6.9% y-o-y in December, well above the consensus forecast of 5.9%, while retail sales rose 8% (versus the consensus of 7.9%). Despite the fairly strong Chinese data, gold held stable this morning at around $1,555/oz.Later today, the focus will shift to US housing and industrial production data and the University of Michigan consumer confidence index. Fed officials Patrick Harker and Randal Quarles are also due to give speeches. We expect gold to consolidate in the $1,550-1,560/oz range